Relationship Between ROA and Total Indebtedness by Threshold Regression Model

Silvia Jencova, Igor Petruska and Marta Lukacova

Montenegrin Journal of Economics, 2021, vol. 17, issue 2, 37-46

Abstract: The aim of this work is to examine the relationship between return on assets and total indebtedness of companies. Knowing this relationship allows for more effective business management. This relationship is analyzed on the basis of data from companies in the engineering (SK NACE 25, 28, 29, 30), electrical (SK NACE 26, 27), food (SK NACE 10, 11, 12) and spa industries in the Slovak Republic. To analyze the relationship between return on assets (ROA) and total indebtedness (TI) are used threshold regression models. Threshold regression models are a nonlinear extension of regression models and have a wide range of applications in economics. Tests show that in each sector we can consider regimes with different coefficients. We have shown the nonlinear character of ROA's dependence on total indebtedness. In the case of the engineering and electrical industry in the first regime, profitability increases with increasing indebtedness.

Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:mje:mjejnl:v:17:y:2021:i:2:37-46

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